Signing your contract the right way is so important for so many reasons:
- It largely sets your income for a relatively long period of time in your prime earning years
- Your income is a key factor in creating your investable margin that you will use to reach financial freedom
- Your contract plays a huge role in your job satisfaction and burnout risk
However, as a physician, you have no real experience negotiating or signing your contract.
Remember, that’s one of the biggest problems that I am hoping to combat with this blog! Our paths in training as physicians are completely scripted. But then we get to the end and have to manage finances as well as job and contract negotiation with no experience, training, or guidance.
I went through this process and realized just how challenging it is. That’s why I decided to share my journey to financial and overall well-being as I go through the process. I don’t want to shout instructions from the finish line. I’m right here with you, sharing all of my ups and downs, wins and losses so we can all learn and improve from each other!
Anyway, let’s get into the top 10 things to know before signing your contract – whether it’s your first or tenth one!
In this post, Dr. Kathyrn Sarnoski, an OB-GYN and Director of Education at Contract Diagnostics, goes through the things you absolutely must consider and know before signing your contract…
1. Everything is negotiable
Know what YOU value and make sure your contract reflects this.
Work schedule, working in one location versus many, compensation structure, vacation time, non competes, etc. – all of this matters!
Even when an organization says their contract is ‘non-negotiable’, you can still negotiate many points. You can often outline these in an addendum. If you know your values, share that with the group and hospital. Find ways to meet your needs as well as theirs.
Maybe they are unwilling to adjust your offered base salary. But, maybe they are open to a higher signing. Or retention bonus. Or increasing your allotted vacation time by a week.
Contract Diagnostics has dealt with numerous ‘non-negotiable’ contracts. And they’ve been able to successfully address physician desires and needs with creativity and professionalism.
2. You should absolutely hire a professional to review before signing your contract
As physicians we have no formal training in how to read or interpret contracts.
Make sure you know exactly what you are signing. A physician contract consulting company (like Contract Diagnostics) or attorney (make sure they don’t have conflicts!) can help explain what the legalease really means and whether it protects you or could potentially harm you.
Choose a company or individual who specializes in physician contracts. It will be well worth the money up front. It will potentially save yourself thousands or even hundreds of thousands of dollars later. (Contract Diagnostics does offer FlexPay – interest free payments over time for residents and fellows)
3. Your moving expenses and bonus are taxed as income
As of 2018, all of these bonuses are taxed at your new attending tax bracket rate. This is probably solidly in the 24% and up range. So that $50k bonus isn’t a take home of 50k, probably closer to $37.5k maximum.
Also, if you pay the moving company up front for your expenses, your reimbursement will be taxed. Say you pay $10k of your post-tax income, you will receive $10k pre-tax. This will look like up to $7.5k in your pocket.
4. What it will cost to leave the job
Make sure you know your termination clauses.
How much notice will you have to give them if you decide to leave? The typical is 90 days, some will have more and some less, negotiate a time frame that makes sense to you. What will the cost of leaving be?
Back to the bonuses! Often these bonuses are on the line if you leave your job. So let’s say you received a $50k bonus. This means in your pocket after tax was no more than about $37.5k. If you leave, you may have to pay them back the entire $50k, not just the $37.5 you saw, and maybe already spent!
Alternatively or in addition, some companies will make you pay back any RVUs they reimbursed you for that you didn’t end up earning. That could be very costly!
Other expensive termination clauses are when you did not have tail insurance covered. We worked with an OBGYN who after 2 years out in practice, had to pay $184k in one lump sum to buy her tail insurance and move to a new job. Make sure there is a clean and clear termination clause in your contract and you are entirely comfortable with the stipulations.
5. How the restrictive covenants could impact me
Restrictive covenants such as non-competes are common in contracts.
Often they have a radius and time component. For example, for 18 months following the end of your employment you cannot work within 25 miles of your job site.
- That’s 25 miles as the crow flies, not on winding side roads.
- For two, if you worked at multiple clinics across a city, that may be 25 miles from each of those clinics, blacking out vast expanses of your current community.
Do not expect that your company will ignore the non-compete and allow you to take another job nearby. That is a breach of contract and could be a very expensive lesson. To ride out that time, you may have to travel longer distances for work, or even move your entire family elsewhere.
If you anticipate wanting to stay in one area for a long period of time, make sure your non-compete clause will allow that.
6. What malpractice policy do they offer
There are two main types of malpractice coverage: occurrence based (the preferred policy!), and claims made.
An occurrence policy has lifetime coverage for the incidents that occur during a policy period (so you’re well set if your company guarantees this policy!), regardless of when the claim is reported.
A claims-made policy only covers incidents that happen and are reported within the policy’s time frame, unless a ‘tail’ is purchased. Tail coverage can be extremely expensive, especially for certain professions such as an OBGYN. Make sure it is guaranteed covered by your practice even after you leave, as this is not always the case.
If not available, make sure you get a malpractice insurance quote ahead of time. A tail policy could easily cost you six figures (a lump sum of cash you will need available).
7. I should negotiate my letter of intent (or just ask to see the actual contract)
A letter of intent is sometimes provided to you before you see the actual contract. It outlines the basics of the contract, often highlighting at least compensation, benefits, start date, duration of contract, duties, and FTE.
Signing the letter of intent essentially states that you are wholly interested in the position and committed to negotiating the contract with them.
Make sure the letter of intent states what you want and expect. If the compensation is too low or the start date is inaccurate or the work schedule seems outrageous, negotiate this now, not when you get the contract. At that point they may state you have already agreed to the former and it is too late.
We know you are excited about this contract, but take your time.
8. My work (volunteer or paid) at an outside facility needs to be negotiated ahead of time
If you have been volunteering as staff at a student run free clinic or working at Planned Parenthood, your new contract may not allow this outright. Often contracts will state that outside work needs to be approved in writing, which means you run the risk of losing out on those opportunities.
If they are paid (locum tenens, etc), the company may have a clause stating they receive that income instead of you, or something of the sort.
If you have a passion for the outside work you are currently doing, or have a strong intent to pick up side jobs, make sure to negotiate this in writing in the contract ahead of time.
9. Your values
Taking the time to introspect and consider your values and priorities can help you come to the negotiation table with clear metrics.
You may value your income, your location, your vacation time, or maybe your clinical or research experiences above all else. Whatever your highest value, it is yours and it is valid.
Know where you are willing to give in order to receive what you need, and know where you draw the line.
10. Know what’s “fair”
I’ve talked before about the importance of knowing your value as a physician in numbers before signing your contract.
But, when a company hands you a contract that says a particular salary, a certain amount of vacation time, specific CME funding, how do you know if this is in line with what others in your field and/or community are receiving?
Interview at multiple jobs, get multiple offers, talk to others about their offers and negotiations.
If you don’t have the time or interest in doing so, reach out to a company like Contract Diagnostics and Compensation Rx who can inform and support you by providing all of this data and can help you understand your options.
In the end…
Contracts are complicated. Contracts are confusing. Even for those experienced.
The bottom line is that you need to prepare for your contract negotiations before signing your contract. That often means enlisting help.
I had more than 10 mentors review my contracts and also hired an independent lawyer to review my final contract. And I recommend similar attention to detail for everyone!
Contract Diagnostics, a sponsor at PPS, is a great resource to help you make sense of everything and help you achieve the contract you desire and deserve.
And once you set your income by signing a breast contract, make sure to develop the financial habits that will transform that income into financial freedom and create a written financial plan to lead you there. If you’ve done this already, make sure you have completed the 9 step financial checklist for this year.
And don’t forget to sign up to start earning money from medical surveys right now or to check out my free masterclass webinar on The 12 Steps to Financial Freedom for Physicians!
What do you think? What do you wish you knew before signing your contract? How did your negotiations go? Let me know in the comments below!